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ISLAMABAD: The government is likely to establish a subsidiary company of Pakistan Steel Mills (PSM) to transfer its liabilities, aimed at cleaning its books to make it ready for privatisation, well informed sources told Business Recorder.

The steel mills has been dysfunctional since June 2015 due to disconnection of gas. PSM's liabilities and losses are around Rs 600 billion (Rs 290 billion liabilities and Rs 300 billion losses). Sui Southern Gas Company Limited (SSGCL) has refused to waive the Late Payment Surcharge (LPS).

The Board of Directors (BoD) of PSM is also ineffective since long as the Chairman of the Board has gone back to the United States and has no intention tof coming back anytime soon.

This correspondent inquired whether he has resigned as Chairman PSM Board, and he replied " I have not decided yet".

On September 2, 2020, he said that as progress on restructuring and privatisation was too slow he decided to leave the country. However, he participates in the meetings through video link.

The sources said, the Board of Ministry of Privatisation will meet on Wednesday to discuss and approve the transaction structure of PSM, recommended by the Financial Advisors (FAs).

It is not clear if the Privatisation Commission has sought approval from the PSM Board on the proposed transaction structure of the loss making entity as the Board was not ready to become involved in the transaction due to NAB factor. "Financial Advisors have recommended two different models of PSM's privatisation, one of which is establishment of a Special Purpose Vehicle (SPV) with liabilities and losses of PSM to be transferred to the proposed company to clean the books of PSM," the sources said, adding that most probably this transaction structure would be approved by the Board.

According to media reports the investor could be offered 51 per cent to 75 per cent share in the new subsidiary. The core operating assets will be carved out, excluding the land. About 7 per cent of the total land or 1,268 acres of land will be leased out to the subsidiary for use of PSM. The remaining land value of over Rs 310 billion will remain with the PSM Corporation.

The sources said, due to poor financial condition of PSM, the government has been paying net monthly salaries to the employees since 2013. PSM stopped its commercial operations in June 2015 without formulating any human resource plan for its 14,753 employees. The number of PSM employees declined to 9,350 in 2019. Presently, the per month net salary bill of PSM employees is approximately Rs 350 million, adjusted as loan in the financial accounts of PSM. Since 2013, an aggregate loan of Rs 34 billion has been extended to PSM by the Government of Pakistan on account of net salary payment.

Insiders claim that the newly appointed Chief Executive Officer (CEO) of PSM is not interested in revival of the PSM and is just spending his time in routine matters. However, other officials recently hired by the Ministry are allegedly involved in some suspicious activities in the mills. One of the officials who deals with security affairs of the mills is also reportedly an employee of a hotel in Islamabad.